Don’t Make This Costly $30K Mistake on Your Property Development

Don’t Make This Costly $30K Mistake when you’re thinking Dual Occupancy

We had a client come to us recently who who had block with an existing house on the front, and he could put a single dwelling on the back or he could put up two detached units.

He had gone to two project home builders who basically said “Here’s our standard three bedroom single garage home, we’ll stick that along the back boundary. That’s $6,000 thank you for your time”.

So, what did he pay $6,000 for?

Well, he paid for the design and for them to do a construction budget on what it would cost. The worst part of it is that they gave him a design that wasn’t compliant, and a budget that wasn’t realistic.

They just picked one of their standard designs that they figured would fit on the site.
Granted, they had the right distance off the rear boundary. They at least got that part right. But no thought had gone into any of the many aspects that were required by Council.

The Council required that cars leave the site in a forward motion but there were no turning areas. Two parking spaces were required for each house and they made no consideration of that for the existing house. They basically took out the private open space for the existing house. They didn’t consider any of that either. So, my client went to the council with the concept plan that this project home builder did for him, and the council just told him no, it will never happen that way.

So he paid $6,000 for a copy and paste plan that would never have been approved by Council.

And the sad part is, he did this twice.

The second time he went to another project home builder. They too had the same kind of concept mock-up, and they too just cut and pasted to fit the property. And again they didn’t allow for any of the site works, the extra driveway works, none of the landscape work required by his Council. There was storm-water upgrades that needed to be done on this site, and what they call a retention basin which had to be constructed. They didn’t factor any of that in to the price.

When we took it over, we basically had to redesign the whole thing to make it function and then break the news to him that the $150,000 quote that he got was really not realistic and that it was much closer to $250,000.

So, if he had signed a contract with them, later on down the track he would have just been surprised with a “whoops”, that’ll be another $100,000, thank you.

With Giulio’s help, he got his money back and made about $20K

And that’s considering that the design would get by, which it wouldn’t, he would have signed a contract, paid his 10 percent deposit, and then once it went to Council for approval, the Council would come back and say it needed a retention basins design, and the driveways need to be upgraded, and this, this, and this.

The Project Builders he engaged would basically tell him that the house was based on a standard concept model and that he approved and signed for.

The Council have asked for this, this, and this, so these are additional costs and it’s going to cost an extra $100,000 and he would have been stuck with it.

He would have ultimately paid that much by doing it the right way, but he would have planned for that. He would have gone to his bank and said I need $250,000, instead of going to his bank and asking for only $150,000. Then coming back needing another $100,000, and making the bank start to doubt his ability to see this through because he’s already messing up before he’s even started. They start thinking about what else is about to come? And what happens if he doesn’t make it, He might not be able to get the extra $100,000. What if he is restricted to just $150,000.

So he’s paid for two design concepts he can’t get through Council and that means he’s lost 10 percent of the construction cost and he’s got nothing for it.

If he’d come to us right from the start, he could have saved himself about $30,000, he would have known what he needed for the whole project, what the cashflow necessary was, so he could manage that.

Eventually, he was referred to us by his nephew. And as soon as I looked at the plan, I knew it wasn’t going to work, and I told him straightaway. I was able to tell him why, We’ve done a lot of work in that Council area so I knew straightaway that all those issues were going to be an issue.

He had a fair idea I was right because he had already been to Council. The Council Planning Dept. told him what was required. So by Council telling him the exact same thing, I was it reinforced that I was telling him the right thing.

So, he came to us hoping we’d be able to move a little bit here and there and everything would be fine, and still cost the same. Unfortunately we couldn’t and we told him we’d have to do a full redesign.

Well, we came up with something and with a better return as well.

We came up with a design that Council ultimately approved. It took a fair bit of negotiation that meant we had to really push it with them, something we do a lot of for our clients, because we know that we can get away with, and a lot of people won’t put up that fight with Council. We were on a very tight budget and we really pushed the boundaries on a lot of things.We battled with Council for six months, back and forward, and would not take no for an answer, and eventually we got it approved.

Unfortunately, he wasn’t able to build, because of his budget. He was restricted to the $150,000 and the bank wouldn’t lend him anymore.

But he made a return by selling the DA approved site. So he still made money, because he was able to sell it to a developer with a DA approval. So although he didn’t complete the end-development, we were able to set up exit strategies for him, and exit stages.

He could either find the funding to build it himself, or he can sell it DA approved and still make $20K, $30K just by doing that.

So even when people make a mistake and bought the wrong block, you’re able to help them find a way and fight for them so that they can at least sell that block with the approval on it so that someone else can then go and develop that block.

A lot of people choose to do that. They know that they can’t afford to spend $300K – $400K on a development. So they’ll spend $20, $30,000 on getting the Development Approvals, and still sell the block and make $20K, $30K quick return.

– Okay, so if someone has got themselves in a spot of bother, how much extra value does it add to a block of land having that approval in place?

Because the DA is the hard part, so if you can save somebody that headache, they’re willing to pay more for the land, because you’ve done all the hard work. All they’ve got to do is turn up and start building. it just adds a lot of value to the block

How much extra value does it add to block of land? How long is a piece of string?

In this client’s situation, he wasted $30,000 unfortunately, his return wasn’t as much as it could have been.

Because it wasn’t a big or complex development to design and build the design and DA cost wouldn’t have been great. But because he already lost $30,000 his return was far less. He still walked away $20,000 ahead, even though, he could have made $40K – 50K. because again, the block was able to be strati-subdivided.

He was able to promote two properties worth, aprroximately, $500K, $600K each and for an investor it’s just too good to pass up.

So he got his money back, and he made a little bit extra. Not as much as he could’ve have if he’d got it done right the first time, but he was able to at least walk away with a bit of cash in his pocket.

People have to realise that a lot of the project builders work off stock standard plans. So if their plan doesn’t fit on the site, then you need a custom design, and they won’t touch it and there are project builders who will quote on projects knowing that really, it may not get approved. Sometimes, they do it just through pure lack of education. The people that are working on it might not have enough experience in that area, and they just think it is as simple as picking up a standard house and sticking it in the back. It doesn’t always work that way.

You have to find people who do it as part of their scope, who actually do it as part of their business.
If you go to a project home builder that only do estates, then it’s probably not the right person to go to, ’cause they’ve got their stock-standard 20, 30 designs. That’s what you get to pick from. So then, probably not the best person to see in regards to doing a custom design.

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ABOUT GIULIO RANERI

Giulio has over 23 years experience in the design and construction industry. The Company was started with the vision to change the way builders work with their clients.

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